This article reviews the time periods critical to listing brokers and equity purchase (EP) investors for curing delinquencies on an existing loan before the loan must be paid in full.

An NOD has been recorded

Often, owners of encumbered real estate fall delinquent on their trust deed note payments. As a result, foreclosure proceedings are commenced against their real estate by the holder of the trust deed. Two foreclosure proceedings exist: judicial and nonjudicial. A nonjudicial foreclosure proceeding is more commonly called a trustee’s foreclosure.

Since trust deeds contain a power-of-sale provision, the trust deed lender can sell the property at a trustee‘s sale – without prior review by a court. Conversely, the lender may treat the trust deed as a mortgage and sue the owner to obtain a court order authorizing the real estate to be sold at a sheriff’s sale, called a judicial foreclosure.

When a deficiency judgment is permitted, a trust deed lender may choose to complete a judicial foreclosure rather than a trustee’s sale. However, a lender with a note secured by owner-occupied, one-to-four unit residential property purchased with the loan proceeds, as well as a seller under a carryback note and trust deed on any type of real estate, are barred from seeking a deficiency judgment. Thus, the lender will most likely choose the less time consuming and less expensive trustee’s sale.

The foreclosure procedure for a trustee’s sale begins when the lender causes a Notice of Default (NOD) to be recorded. It is the recording of an NOD on an owner’s residence which triggers the application of EP law on sales to investors.

The trustee’s sale

The foreclosure procedure for a trustee’s sale takes at least three months and 21 days to complete. The trustee’s timetable for periodic notices is entirely unrelated to the owner’s timetable for reinstatement and redemption periods, except for the trustee’s sales date and expiration of the redemption period, which are the same.

After recording the NOD, the lender’s trustee must wait at least three months (not 90 days) before advertising and posting notice of the date of the trustee’s sale. [Calif. Civil Code §2924]

The lender’s trustee must advertise and post a Notice of Trustee’s Sale (NOTS) for at least 20 days before the sale. The property can be sold through foreclosure no sooner than the 21st day after advertising and posting begins. [CC §2924f(b); See first tuesday Form 474]

Payment during foreclosure

To avoid a trustee’s sale, an owner has the option of making one of two lump sum payments during the foreclosure period.

A lump sum can be paid to terminate the foreclosure process at any time during either of the following periods:

• any time prior to five business days before the trustee’s sale, called the reinstatement period; or
• during the five business days before the trustee’s sale, called the redemption period.

An equity purchase (EP) investor interested in purchasing property in foreclosure must know the differences between the reinstatement and redemption periods, and understand how to determine their exact cutoff dates. The urgency of a deadline can be used to negotiate a more advantageous set of purchase terms.

The time for payment

After a lender records an NOD, reinstatement of the loan secured by real estate allows the owner to continue his ownership subject to the indebtedness – as though the loan had never been in default. An owner can bring current any monetary or curable default stated in the NOD prior to five business days before the trustee’s sale. [CC §2924c(e)]

The trust deed is considered reinstated when the lender receives:

• all amounts called for in the NOD, including principal, interest, taxes, insurance and assessments;
• installments due and defaulted on after the recording of the NOD;
• any future advances made after the recording of the NOD to pay taxes, senior liens, assessments and insurance; and
• costs and expenses incurred by the lender to enforce the trust deed, including trustee’s fees or attorney fees. [CC §2924c(a)(1)]

A lender’s failure to include the dollar amount of all known defaults does not invalidate the NOTS. Further, the lender can demand payment for the omitted default, and if the default is not paid, the lender can record a separate NOD. [CC §2924]

On reinstating the loan, the loan is returned to installment status. Also, the NOD must be cancelled by the lender to remove the default from title. [CC §2924c(a)(2)]

The reinstatement period ends on the day prior to five business days before the trustee’s sale date. The date of the sale is not counted as a day.

Business days include Monday through Saturday, unless the day is specified as a government holiday. Days specified as holidays include: January 1st, the 3rd Monday in January, February 12, the 3rd Monday in February, March 31st, the last Monday in May, July 4, the 1st Monday in September, September 9, the 2nd Monday in October, November 11, Thanksgiving Day and Christmas Day. (If dates fall on a Sunday, the following Monday is a holiday.) [Calif. Government Code §§6700; 6701]

For example, to determine the last day to reinstate the loan when the trustee’s sale is scheduled for a Friday, simply count back five business days beginning with the first business day prior to the Friday scheduled for the sale. The first business day is the preceding Thursday and the five-business- day period ends on the previous Saturday, unless any day in addition to Sunday is a holiday. Thus, the last day to reinstate the loan is the preceding Friday – one day prior to the five business days and one week – seven days – prior to the sale.

Failure to cure the default before the reinstatement period ends allows the owner to redeem the property (from the trust deed lien) by paying off the loan. Unless the loan is paid in full during the redemption period, the owner will lose the property at the foreclosure sale.

The owner’s right of redemption exists until the moment the trustee completes the bidding and announces the property has been sold at the trustee’s sale. Any owner, junior trust deed holder or other person with an interest in the property may redeem the property by payment of the loan in full. [CC §2903]

Statutory limits on fees

During the period of foreclosure, the amount of trustee’s or attorney fees (but not both) which a real estate lender may recover is limited. As part of the sum due to cancel the foreclosure proceedings prior to the lender mailing an NOTS, the lender may charge:

• $300 for the first $150,000 of the loan balance, or $250 if the loan balance exceeds $150,000, plus
• 0.5% of the next $150,000 of the loan balance, plus
• 0.25% of the next $500,000 of the loan balance, plus
• 0.125% of the loan balance exceeding $500,000. [CC §2924c(d)]

However, once the NOTS has been deposited in the mail, the fee schedule for reinstatement up to the five business days before the trustee’s sale increases to:

• $425 for the first $150,000 of the loan balance, or $360 if the loan balance exceeds $150,000, plus
• 1% of the next $150,000 of the loan balance, plus
• 0.5% of the next $500,000 of the loan balance, plus
• 0.25% of the loan balance exceeding $500,000. [CC §2924d(a)]

The trustee’s fee schedule after mailing the NOTS remains the same until the trustee’s sale. At the trustee’s sale, the attorney or trustee’s fee schedule increases to the greater of:

• $425; or
• 1% of the loan balance. [CC §2924d(b)]

The owner’s alternatives

An owner faced with foreclosure must choose between the following options:

1.	Reinstatement: The owner cures the default either through savings or short-term borrowing.
2.	Refinance: The owner obtains a new loan to pay off the one in default.
3.	Deed-in-lieu: The owner deeds the property directly to the lender.
4.	Litigate: The owner disputes the validity of the foreclosure.
5.	Bankruptcy: The owner files for bankruptcy protection and the foreclosure is automatically stayed until a release is obtained from the court by the lender. [11 United States Code §362(a)] Unless the owner-in-bankruptcy can make up the default as part of a reorganization plan, bankruptcy only delays the inevitable. Once the stay is lifted, the foreclosure sale will take place no sooner than seven calendar days later. [CC §2924g(d)]
6.	Sale: The owner can sell the property and close the sales escrow at any time before the trustee’s sale. A recorded NOD must state the owner still has the right to sell his property in foreclosure. [CC §2924c(b)(1)] In an effort to protect owners from being cheated out of their equities during the foreclosure process by investors or loan consultants, special requirements exist for structuring purchase agreements between owners and EP investors on owner-occupied, one-to-four unit residential property in foreclosure. [CC §§1695 et seq.]
7.	Walk: The owner simply lets the lender complete foreclosure. This is an economically viable alternative for an owner with little or no cash investment in the property, especially if payments saved exceed his equity in the property. Also, selling property in foreclosure is difficult for the owner. Problems arise due to time constraints and the need to locate a buyer able to assume existing loans, cure defaults and correct the deferred maintenance on the property.

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